The Fanni Mae and Freddy Mac imminent possible collapse is an interesting story and draws clear the battle lines in the War on the middle class. Fannie Mae and Freddy Mac are guarantors of loans for mortgages. Their presence makes it possible for more mortgages to be underwritten at affordable rates for qualified home buyers. With them gone or seriously impaired, mortgages would be more expensive and housing values would decline. In short, increased Bank power over the ways and means of working class Americans.
A cynic might see the whole sub prime debacle as an attack on the Fannie Mae-Freddy Mac paradigm started under FDR as an aid to get more Americans into their own homes under reasonable terms. A fair question has to be, what benefit is it to the Banks and lenders to see Fanni Mae-Freddy Mac broke and street after street of empty houses across the American landscape? Who are these people, these "bankers" and what possible pleasure can they be getting from all this hardship they have helped spread in the country?
I know the banks keep any equity paid into a defaulted mortgage, plus the closing costs, fees and whatever other money a banished attempted home owner has paid into his futile effort. The bank also gets to keep the house, though of course they like to "say" they aren't in the Real Estate business. So what gives? Why would banks do this or allow this to happen? You're tempted to say they do it just to be mean, but meanness or revenge is never a savvy business motive unless considerable profit is being made at the same time. Is there the usual pile of obscene profits being made by bank insiders in all this seeming travail?
Of course there are profits. I think it's safe to say that even when banks lose money the "banker" is finding a way to thrive. It's not esoteric, just look at the Bear Stearns CEO severance package for example. Fannie Mae and Freddy Mac executives themselves have been caught with their hands in the cookie jar, just in 2004 was the latest public scandal. Fanni Mae and Freddy Mac are now privatized and what with the falling share prices you can see more money just "disappearing" into thin air. The permutations of the money game evolve of course but the basic game is always the same, buy low-sell high. So who sold high on Fannie Mae and Freddy Mac and is now or soon will be buying low? Especially if the Federal Government and the Federal Reserve step in as is generally expected and bail everybody out?
I can tell you who won't win, but do I really have to? Bond brokers are licking at the chops waiting and ready to fire up those printing presses and get the old bail out ball going. You did know that there is a class of people who get rich from Federal Government deficit spending? Many many people enjoy the business of "brokering" Federal deficit spending. But anyway, how will all this help homeowners caught in this sub prime mortgage trap? Well, I don't see the Government or the banks giving anybody their house back. In fact what I see is terms for loans stiffening across the board for lower income brackets. It will go back to the old days of practically the only people that banks will loan money to with reasonable terms will only be people who don't actually need the money.
History is replete with images of befuddled scared people lining up out side of closed banks waiting and hoping to get some of their money back. History would be a little more accurate if it showed what was going out of the back door of all these "closed" banks. Shall I paint you a picture? He wasn't a banker per se though I'm sure bankers admired him and he no doubt had considerable banking know how, think Ken Lay of Enron. He actually flaunted his accruing riches while Enron stock holders clamored outside the locked doors unable to even sell their suddenly worthless shares. Oh well, on to the next thing.